Germany offers its employees many benefits under numerous compensation laws. Before expanding into Germany or incorporating a subsidiary, it is vital to understand what benefits are guaranteed to employees and what supplemental coverages you can offer to stay ahead of the competition.
Germany compensation laws
The minimum wage in Germany is EUR 12 per hour, however, different minimum wage rates may apply to leased employees. Exemptions to the minimum wage requirements include interns, employees under 18, and long-term unemployed workers for their first 6 months at their new job. Violation of Germany’s compensation law can result in a fine of EUR 30,000 to EUR 500,000.
Overtime work must also conform to the maximum working hours. This means employees can’t work more than 60 hours a week, averaging out to 48 hours over a 6-month period. There is no specific rate of overtime compensation in Germany; any overtime rate is generally agreed to in the employment contract or in an applicable collective bargaining agreement (CBA).
Guaranteed benefits in Germany
Understanding which benefits are guaranteed by law and which are considered additional is a vital part of benefits management in Germany. For example, Germany’s compensation laws do not specify a 13th- or 14th-month bonus, but many employers choose to give an end-of-the-year bonus on top of an employee’s salary.
Employees in Germany are entitled to 24 vacation days a year if they work 6 days a week. Employees that work 5 days a week get 20 days of vacation time a year. While this is the standard set by law, most employers give full-time workers 25-30 days of vacation time a year.
Pregnant employees are entitled to 6 weeks of paid parental leave before the birth,
The German Social Security System has many separate components that all employers and employees contribute to, including:
- Pension insurance
- Health insurance
- Unemployment insurance
- Nursing care insurance
Accident insurance, parental insurance, and insolvency insurance are paid only by the employer.
Germany benefits management
You will face harsh fines if you do not follow Germany’s compensation laws correctly. Designing a benefits plan for your employees requires a significant amount of time, money, and travel. However, working with a global employer of record takes the stress out of international benefits management and helps you stay compliant.
Restrictions for benefits and compensation
Pay attention to the number of hours your employees work every day. Germany’s laws state that employees cannot work more than 8 hours a day and 48 hours per week. This can be extended to 10 hours per day if, within 6 months or 24 weeks, the overall average working time does not exceed 8 hours per day. Employers also need to pay employees at or above the minimum wage to avoid fines.
Germany competitive benefits planning
When you grow your company in a new country, you’ll need to learn about typical benefits in the labor market and what you have to provide by law. For employee benefits planning in Germany, you need to consider factors like social security and annual leave before you determine supplemental provisions.
Germany employee benefits plans
Benefits play a critical role in company compliance and employee recruitment and retention. While every country has labor laws with minimum benefits requirements, workers also expect additional support from their employers. The benefits plan you create will show your employees how valuable they are to your company.
If you want your open positions to be competitive, your benefits package will likely need to include supplemental provisions outside of the legal requirements. The options for these perks are wide-reaching, and it will take some research to determine which ones are best for you. You’ll have to consider your unique needs as a business and what’s typical in the labor market.
Possible supplemental provisions include:
- Company bikes or cars
- Gym allowances
- Holiday bonuses
- Remote work opportunities
- 4-day weeks
- Paid lunch
Designing employee benefits plans in Germany
The challenge of benefits planning is meeting your employees’ needs without overextending your company’s resources. This 3-step process can be a helpful starting point.
1. Evaluate company goals and resources.
In this phase, you should focus on understanding your business earnings and what you want to prioritize with your spending. Knowing your income can help you establish an estimation for benefits expenses, and setting priorities can help you allocate your funds.
Do you want to focus on employee retention or recruitment? Are you interested in improving competitiveness in your industry? If you decide to focus on retention, you might opt for more robust benefits and a smaller team. If your focus is competition, you may allocate your resources to match the same benefits as other industry leaders.
2. Learn about employee needs and expectations.
To understand employees’ needs, you might survey local workers to find what they want from an employer. You might also research the benefits of other companies in your industry. Doing so can help you understand what job applicants expect from employers. With this understanding, you can find out what benefits plans will make your open positions attractive to candidates.
3. Create a balanced benefits plan.
After you establish your goals and resources, you can enter the development phase. In this stage, it’s best practice to define the required benefits first and build up based on your budget. Find commonalities between employee needs and industry patterns to understand the high-priority supplemental benefits.
Average cost of benefits
The cost of benefits varies extensively between companies, which means a broad market average wouldn’t be a fair assessment of pricing. Benefits expenses depend on several factors, including company size, industry, and location.
Rather than relying on an average cost, you should create a budget unique to your company’s revenue and expenses. It’s helpful to set a percentage of your earnings so your budget will grow as your revenue does.
How to calculate employee benefits
The required benefits outlined in Germany’s labor laws offer some guidance on calculation. For example, social security contributions should be made in evenly split percentages from the employer and employee (except 3 insurances, which the employer contributes to alone).
How are employee benefits taxed in Germany?
The country declares any earned employment income as taxable. Generally, employment income refers to all forms of earnings and assets, including fringe benefits.
Employee health benefits
Under the country’s social security scheme, employees are covered for most types of healthcare. Employees with a monthly salary of over EUR 4,987.50 have the option to transition to private insurance where they can receive
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